The project of LNG terminal in Odessa Oblast.
Ukraine's government is reviving a project to construct a liquefied natural gas terminal on the Black Sea shore in Odessa Oblast that experts say could satisfy at least 10 percent of Ukraine’s gas needs in the short term and 20 percent in the long term.
Sergiy Yevtushenko, the newly appointed head of the State Agency for Investment and Development, which is responsible for the LNG-terminal project, says the price for LNG in Ukraine is $370-380 per thousand cubic meters. Regasification, he says, should add $40 to that figure, making the total cost $65-75 below what Ukraine currently pays, not including tanker rental. Ukraine gets much of its energy from Gazprom, the Russian state-controlled energy giant.
Since former President Viktor Yanukovych's fall from power on February 22, Prime Minister Arseniy Yatsenyuk's post-revolutionary government has made energy independence the cornerstone of its energy policy.
Yatsenyuk announced on April 2 that completing the LNG-terminal, began construction under Yanukovych, would not only help diversify Ukraine’s gas sources, but also “bring in several billion cubic meters of gas annually.”
Yevtushenko said on April 2 that the first phase of construction could be completed in twelve months. “We never stopped working on it, and the active support of the government is a key incentive for the early start of deliveries of liquefied natural gas to Ukraine,” Yevtushenko declared.
President Viktor Yanukovych initiated the project to build a port terminal near Odessa to receive and re-gasify liquefied natural gas in 2010, andthe first shipment was expected to arrive in the autumn of 2013. The total estimated cost of the project was $1.3 billion. The Ukrainian government planned on having a 25 percent stake in the terminal with South Korean investors also participating. Algeria, Azerbaijan and Qater were expected to supply the liquefied gas for the project.
Phase one was to serve 5 billion cubic meters per year in the form of a floating facility for regasification and storage. Phase two involved construction of an onshore LNG terminal capable of serving tankers with a capacity of 178,000 cubic meters and a total LNG storage capacity of 540,000 cubic meters, which would hold up to 10 billion cubic meters per year by 2018.
But scandal dogged the project. The Spanish company Gas Natural Fenosa reportedly signed a billion-dollar deal with the State Investments and National Projects Agency on Nov. 26, 2012 regarding participation in the project. However, Fenosa denied that their so called representative had the authority to sign anything. The deal fell apart and Fenosa stepped out of the LNG-terminal project, setting it back and embarrassing the Ukrainian government.
Former presidential consultant on energy security (2008-2010) Bohdan Sokolovskiy is not so enthusiastic about importing LNG. Above all, he says, “not only the issue of financing must be settled, but also definite suppliers must be contracted before building should resume. So far, I see neither.”
Another challenge to overcome for the project to reach full capacity is convincing Turkey to let more LNG-hauling tankers through the Dardanelles, explains Sokolovskiy. “So far, I have not heard of talks even taking place,” he said. Such vessels represent a greater the fire hazard in the busy straits, according to the Center for Transport Strategy.
Still, the project appears to be commercially viable in light of the anticipated rise in gas prices for Ukraine and surge in global LNG production.
At the moment, the offloading price for LNG in Europe is just $252 per thousand cubic meters. In December, Russia’s biggest gas consumer Germany was paying about $277 per thousand cubic meters, according to indexmundi.com, which sounds like a good deal until one sees that the going rate in Asia is $400-480, according to oilprice.com. But this might be a temporary phenomenon, industry expert Nick Cunningham of oilprice.com argues, because rising LNG production ahead of demand will eventually depress prices. When prices fall, however, is subject to debate.
Energy dependence is one of the many levers the Kremlin has to influence Ukraine, and is actively using it, threatening higher gas prices and inflated gas debts. Ukraine gets most of its gas from Russia. Of the 50 billion cubic meters consumed in 2013, 28 billion cubic meters came from Russia, 20 billion cubic meters extracted from domestic resources, and the remaining 2 were taken from Europe.
Russia’s Gazprom has been playing fast and loose with its gas policy on Ukraine. The latest outrage occurred on May 12, when Gazprom CEO Alexei Miller said that Ukraine’s gas debt was now $3.5 billion and as of June 3 his company would put Ukraine on a pre-payment system.
The new government has been quite active in fulfilling is energy independence agenda thus far. On April 28 Ukraine signed a memorandum with neighboring Slovakia for the latter to sell to Ukraine up 8 billion cubic meters of gas annually, starting this autumn. This is in addition to much smaller amounts Ukraine has agreed to buy from Hungary and Poland.
Kyiv Post business journalist Evan Ostryzniuk can be reached at firstname.lastname@example.org.